Yeshiva U. Sheds Burden of Albert Einstein Medical School — But at What Cost?

After almost 60 years as a prestigious secular jewel in its crown, cash-strapped Yeshiva University will cede control of the Albert Einstein College of Medicine to Montefiore Medical Center.

In a May 27 statement, Montefiore and Y.U. announced that they would create a new joint entity in which Montefiore would assume greater responsibility for operations and financial management of Einstein, while Y.U. would continue as Einstein’s degree-granting parent.

Y.U.’s president Richard Joel alluded to the university’s financial problems in his statement announcing the creation of a new entity to run Einstein, which he called a “historic” decision.

“We are delighted to emphasize our shared commitment to assuring the continuity and growth of the educational and research functions of Einstein while remaining a leader in medical education,” Joel said in the statement. “At the same time, we are taking a powerful and important step towards building a financially sustainable Yeshiva University.”

Many details remain unclear about the merger, including just how much control Montefiore will now exercise over Einstein’s academic and research activities in exchange for the bill it is footing. But just one year ago, outwardly at least, the joining of Montefiore and Einstein seemed unthinkable.

At a gala dinner held at the Plaza Hotel in April of last year, 400 supporters of Einstein listened to an announcement by Einstein’s dean, Dr. Allen M. Spiegel, of the school’s largest-ever fundraising effort, a $500 million capital campaign.

Spiegel followed the announcement by revealing that Einstein had raised $400 million for the campaign already, thanks in part to the largest gift in Einstein’s history: a commercial real estate bequest, from the estate of Muriel Block, valued at more than $160 million.

Ruth L. Gottesman, chair of Einstein’s Board of Overseers, told the dinner guests: “I have never been more enthusiastic about our future.”

But a Forward review of financial documents, as well as interviews with Y.U. faculty and with financial analysts, suggests that Einstein’s future even then was far from rosy.

Y.U., which has had to borrow heavily in recent years, set aside half of the Block bequest — about $82 million — not for long-term building projects or endowments of the sort associated with capital campaigns, but as operating cash for Einstein, according to a recent report by the ratings agency Standard & Poor’s. Indeed, according to Y.U.’s most recent financial statement, Einstein spent $50 million of the Block funds within a couple of months of the dinner on what it called “medical research spending.”

The reality is that Einstein, the nation’s first medical school established under Jewish auspices, has been losing tens of millions of dollars a year. And for Y.U., which is facing its worst financial crisis in more than 30 years, the Bronx medical school has posed perhaps the single biggest problem.

Consultants brought in by Y.U. to solve the crisis isolated Einstein as the chief cause of Y.U.’s dire financial condition. One Y.U. faculty member who did not wish to be named said colleagues were stunned at a March 19 faculty meeting, when Robert Hershan, a consultant for the turnaround firm Alvarez & Marsal, told staff that Einstein is responsible for two-thirds of the university’s annual operating deficit.

A spokesman for Y.U. declined to comment on the specific percentage that Einstein contributes to the university’s annual operating deficit. But Carolyn McLean, an analyst at S&P confirmed the figure to the Forward for the last financial year.

That year, McLean told the Forward, $43 million of Y.U.’s total operating deficit of $64 million was attributable to Einstein.

McLean declined to reveal Einstein’s operating deficits for the previous three years. But Y.U.’s overall deficits for those years were $106 million, $47 million and $107 million, respectively.

In recent weeks hundreds of Einstein employees have been faced with buyout offers or the risk of layoffs, according to a May 21 report in the Bronx Times.

The Bronx newspaper also reported then that rumors were swirling among Einstein staff of a possible merger between Einstein and Montefiore.

Asked whether Y.U. remains pledged to retain Einstein long-term, a spokesman for the university told the Forward on May 20: “Our answer to that question is, Yes.”

Albert Einstein was flattered when he learned that Y.U. intended to name its medical school after him. In a 1951 letter to Y.U., Einstein, who was then 72 years old, said: “To my mind, this undertaking is of the greatest importance to American Jewry; it is an act of self-help to make it possible for many of our young people in this country to study medicine.”

When the college opened in the fall of 1955, several months after Einstein’s death, Y.U.’s president, Samuel Belkin, said the school would be “a living monument, erected by American Jewry and the American people, to the memory of one of the greatest men of our era.”

But medical schools are a double-edged sword. The prestigious ones often attract large donors, but they can also be huge drains on finances. Tuition fees never cover the cost of education, and grants cover only a fraction of the costs of research. Instead, most, though not all, medical schools make money by offering clinical services.

In many cases, medical schools operate their own teaching hospitals, providing them with an ongoing clinical services revenue stream. Or in a business model known as a faculty practice plan, salaried faculty members provide medical care at other hospitals, from which the school takes a share.

But Einstein long ago divested itself of its hospital, the Jack D. Weiler Hospital, and its faculty practice plan, both of which were taken over by Montefiore.

Montefiore took over Weiler hospital on a long-term lease more than 40 years ago. A recent report from Moody’s Investor Service, described the hospital’s most recent payment to Y.U., $2 million in fiscal year 2013, as “modest.” Einstein also has affiliation agreements with seven other hospitals. But its most important relationship remains with Montefiore, which with 18,000 employees is the largest employer in the Bronx.

Representatives for Einstein and for Montefiore declined to reveal the terms of their affiliation agreement. But some Y.U. insiders believe that Montefiore has had the better end of the relationship overall.

Most primary academic hospitals such as Montefiore pay their medical schools to support research. But Y.U.’s consultants believe that Einstein has been underpaid, according to a Y.U. faculty member.

The hospital nevertheless continued to feed off the prestige and talent of being associated with Einstein, including co-branding most of its advertisements with Einstein’s logo.

In recent months, Y.U.’s consultants have told faculty they were working on a plan whereby Montefiore would increase its reimbursements to Einstein.

“They’re hopeful those deficits will be at least addressed in some way going forward,” the faculty member said. It seems that by joining the two entities together and ceding control of day-to-day operations of Einstein, Y.U. has found a way of having Montefiore shoulder more of the financial burden.

The high-rise buildings of the Albert Einstein College of Medicine and of Montefiore Medical Center dominate Morris Park, a leafy neighborhood of one and two family working class and middle class homes in the Bronx.

Today, Einstein is renowned as a research intensive medical school. The latest addition to Einstein’s campus is an elegant, modernist $220 million research building, the Michael F. Price Center for Genetic and Translational Medicine and Harold and Muriel Block Research Pavilion.

When Spiegel took over as dean of Einstein in 2006, he inherited a large budget surplus. Since then, he has presided over a series of major investments, including the hiring of 140 new faculty members and the opening of the Price-Block building in 2008.

In U.S. News & World Report’s latest rankings of America’s medical research schools, Einstein ranked 34th out of 128 schools.

In a March 2014 report, Moody’s noted that the Price Center-Block Pavilion increased Einstein’s fixed costs for facilities, research and equipment.

Einstein can never fully recover the expense of research, including space, startup labs and administrative costs.

Most of its research grants are from the National Institutes of Health, which has faced uncertainty in recent years because of cutbacks in federal spending.

A December 2013 analysis published by S&P noted that “Y.U. projects declining revenue over the next few years based on expected declines in federal allocations to NIH and increased competition for grants.”

During the past two years, according to Y.U.’s audited financial statements, the school’s total grant funding fell sharply, to $205 million in 2013 from $243 million in 2012.

A faculty member at Einstein said the medical school’s problems had been compounded by accounting software that was recently introduced across Y.U.

The faculty member said that the software, called Banner, had been “a nightmare” for those who rely to a great degree on grant funding.

The faculty has had a difficult time maintaining “a coherent accounting of the grant revenue stream and where all the grant money has been going,” the faculty member said.

“I know personally that when my grant comes up, we go round in circles trying to work out how to get [the] errors in Banner fixed,” the faculty member added. “It’s been a big problem.”

Y.U.’s latest financial statement is clear about the cause of its deficits.

It states that in addition to losses in research grant funding, Y.U. is primarily suffering because it has lost money on its investments and it is spending too much on student financial aid, faculty and facilities. Yet Einstein’s latest capital campaign is intended to recruit more faculty and to expand research and state-of-the-art facilities.

Meanwhile, after six years of deficits, Y.U.’s leadership has to figure out how to orchestrate a turnaround that, according to Moody’s, will take years.

Select faculty members not just at Einstein but across Y.U. are already being offered retirement incentives.

In a series of questions sent to Y.U. weeks before the announced merger between Einstein and Montefiore, a spokesman for Y.U. declined to comment on specific measures Einstein is taking to resolve its deficits.

In a May 12 email to the Forward, the spokesman said: “Einstein is in the process of making significant expense reductions that are designed to reduce overhead without harming the college of medicine’s core missions: educating students to become high quality, compassionate physicians, conducting biomedical research and delivering superb patient care.”

The spokesman also said that accounting systems at Einstein are now “effectively tracking our grant funding.”

He added: “Recent changes in health care reimbursement and the federal budget sequestration reduction in National Institutes of Health funding have presented severe budget challenges for grant-funded medical research at Einstein and other leading research-intensive medical schools, which we are continuing to actively address.”

A spokeswoman for Montefiore, while declining to comment on the hospital’s financial relationship with Y.U., said on May 16: “Montefiore’s partnership with Einstein is long-standing, and we remain deeply committed to its success for both research innovation and clinical advancements. We recognize the world of research faces significant challenges, and we hope the government will reinstate funding for extremely important medical research in the near term.”

A member of Y.U. faculty told the Forward, that in recent months there has been a debate among Y.U. administrators about the possibility of parting with Einstein.

“It would be a disaster if they let Einstein go,” the faculty member said.

The faculty member said that in the academic world, Yeshiva is best known for Einstein and for Cardozo, its law school.

Letting one of these highly regarded professional schools go would be a retreat away from secular studies and would push Y.U. towards a more religiously oriented school, the faculty member said.

“This is the debate,” the faculty member added. “This is the fundamental tension between the two approaches to a modern Jewish education and what it stands for.”

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Paul Berger has been a staff writer at the Forward since 2011, covering crime and healthcare issues, such as sex abuse, circumcision, and fraud. He is a fluent Russian speaker and has reported from Russia and Ukraine. He also likes digging into historicalmysteries.

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